Question
In: Finance
You are considering the purchase of a $1 comma 000 par value bond with a coupon rate of 5 %
Solutions
Expert Solution
Bond valuation means determining the fair price of the bond by taking the use of coupon rate, YTM, redemption amount, etc.
The fair price of the bond is compared to the actual price of the bond to determine whether the bond is undervalued or overvalued. For investors, if the bond is undervalued it is wise to make the investment.
Computation of the APVF (Annuity present value factor) & PVF (Present value factor)
The APVF and the PVF are computed by applying the formula where r means the YTM i.e., 4.5% (9/2, semi-annual payments), and n means the number of periods i.e., 24 periods (12 years*2). The value of the APVF and the PVF will be used in the calculation of the bond price.
Computation of the bond price
Bond price is $710.10.
Bond price is $710.10.
Junaid answered 1 year agoRelated Solutions
Find the value of a bond maturing in 4 years, with a $1 comma 000 par value and a coupon interest rate of 11% ?
Find the value of a bond maturing in 4 years, with a $1 comma 000 par value and a coupon interest rate of 11% ?(5.5% paid semiannually) if the required return on similar-risk bonds is 16% annual interest left parenthesis 8 % paid semiannually).
You are considering the purchase of a $1,000 par value bond with a 6.5% coupon rate...
You are considering the purchase of a $1,000 par value bond with
a 6.5% coupon rate (with coupon paid semiannually) that matures in
12 years. If the bond yield is 8%, what is the bond’s current
price? Whether this bond trades at a premium or at a discount?
1- You are considering the purchase of a $1,000 par value bond with an 6.5% coupon...
1- You are considering the purchase of a $1,000 par value bond
with an 6.5% coupon rate
(with interest paid semiannually) that matures in 12 years. If the
bond is priced to provide
a required return of 8%, what is the bond’s current price?
2- Two bonds have par values of $1,000. One is a 5%, 15-year
bond priced to yield 8%. The
other is a 7.5%, 20-year bond priced to yield 6%. Which of these
has the lower price?...
Find the value of a bond maturing in 7 years, with a $1 comma 000 par...
Find the value of a bond maturing in 7 years, with a $1 comma
000 par value and a coupon interest rate of 9 % (4.5 % paid
semiannually) if the required return on similar-risk bonds is 16
% annual interest left parenthesis 8 % paid semiannually).
The present value of the bond is:
A $ 5 comma 000 bond with a coupon rate of 6.6% paid semiannually has two...
A $ 5 comma 000 bond with a coupon rate of 6.6% paid
semiannually has two years to maturity and a yield to maturity of
8.7%. If interest rates rise and the yield to maturity increases
to 9%, what will happen to the price of the bond?
A bond that matures in 11 years has a $1 comma 000 par value. The annual...
A bond that matures in 11 years has a $1 comma 000 par value.
The annual coupon interest rate is 11 percent and the market's
required yield to maturity on a comparable-risk bond is 16
percent. What would be the value of this bond if it paid interest
annually? What would be the value of this bond if it paid interest
semiannually?
1. You buy a bond with a par value of $1000 and a coupon rate of...
1. You buy a bond with a par value of $1000 and a coupon rate of
8% with 18 coupons remaining. You hold the bond and receive 11
coupons. If the bond had a YTM of 8.2% when you bought it and 9.1%
when you sold it, what was your annual holding period ROR?
2. A company’s dividends will be as follows: Year 1= 2.25, Year
2= $2.80, long-term growth rateafter year 2= 5.5%. If the market
risk free rate...
You own a bond that pays $120 in annual interest, with a $1 comma 000 par...
You own a bond that pays $120 in annual interest, with a $1
comma 000 par value. It matures in 15 years. Your required rate of
return is 11 percent.
a. Calculate the value of the bond.
b. How does the value change if your required rate of return
(1) increases to 15 percent or (2) decreases to 6 percent?
c. Explain the implications of your answers in part (b) as
they relate to interest rate risk, premium bonds, and...
A $ 1 comma 000$1,000 bond with a coupon rate of 5.45.4% paid semiannually has tenten...
A $ 1 comma 000$1,000 bond with a coupon rate of 5.45.4% paid
semiannually has tenten years to maturity and a yield to maturity
of 88%. If interest rates rise and the yield to maturity increases
to 8.38.3%, what will happen to the price of the bond? A. rise by $
17.79$17.79 B. fall by $ 17.79$17.79 C. fall by $ 21.35$21.35 D.
The price of the bond will not change
A $ 1 comma 000$1,000 bond with a coupon rate of 6.9% paid semiannually has eight...
A $ 1 comma 000$1,000 bond with a coupon rate of 6.9% paid
semiannually has eight years to maturity and a yield to maturity of
6.6%.
If interest rates fall and the yield to maturity decreases by
0.8%, what will happen to the price of the bond?
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- A house can be purchased for $155 comma 000155,000, and you have $25 comma 00025,000 cash...
- Instructions: SLLQueue (13 pts) ● Using the three properties below, implement the queue interface using the...
- The Typhoon Company uses straight-line depreciation. It lowers an estimated salvage value, resulting in a depreciation...
- The Wrigley Corporation needs to raise $17 million. The investment banking firm of Tinkers, Evers &...
- Millco, Inc., acquired a machine that cost $544,000 early in 2016. The machine is expected to...
- Given what you know about benefits plans and options, as well as costs and factors for...
- Basic psychological processes play an important role in understanding how consumers make decisions. Marketers must therefore...
ADVERTISEMENT